Correlation Between Great West and National Tax

Can any of the company-specific risk be diversified away by investing in both Great West and National Tax at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Great West and National Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Great West Government Mortgage and The National Tax Free, you can compare the effects of market volatilities on Great West and National Tax and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Great West with a short position of National Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great West and National Tax.

Diversification Opportunities for Great West and National Tax

0.75

Correlation Coefficient

Great West  National Tax

Poor diversification

The 3 months correlation between Great and National is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Great West Government Mortgage and The National Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Tax and Great West is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Great West Government Mortgage are associated (or correlated) with National Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Tax has no effect on the direction of Great West i.e., Great West and National Tax go up and down completely randomly.

Pair Corralation between Great West and National Tax

Assuming the 90 days horizon Great West Government Mortgage is expected to under-perform the National Tax. In addition to that, Great West is 1.57 times more volatile than The National Tax Free. It trades about -0.16 of its total potential returns per unit of risk. The National Tax Free is currently generating about -0.02 per unit of volatility. If you would invest  1,881  in The National Tax Free on September 14, 2024 and sell it today you would lose (5.00) from holding The National Tax Free or give up 0.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Great West Government Mortgage  vs.  The National Tax Free

Great West Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Government Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, National Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Great West and National Tax

The main advantage of trading using opposite Great West and National Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West position performs unexpectedly, National Tax can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in National Tax will offset losses from the drop in National Tax's long position.

The idea behind Great West Government Mortgage and The National Tax Free pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.